We have a halfway decent local shop here in DC, Penn Camera. They carry some 4x5 (nothing bigger), an ok selection of paper and chemistry (they still keep RA4 paper in their fridge!). I buy what I can from them, and I don't complain much about their prices, as they're not TOO far off New York/Online prices, and I can justify it as a convenience tax. On large hard-goods (scanners, camera gear, printers, etc) they will match advertised prices from B&H, Calumet, etc if it doesn't make them lose money on it, so I do buy hard goods from them as often the local sales tax comes in cheaper than the shipping on something big, and I know if I have a problem when I get home, I can just stuff it back in the box and have a new one in a couple hours, instead of shipping it back and waiting for a replacement.
Much of my film needs now though is met online because nobody local carries it, and/or it is a single-vendor unique product (Arista.EDU Ultra films... I know they're Fomapan, but only one or two vendors in the US sell Foma in the first place, and Freestyle's Arista is cheaper by a significant factor). Most of my chemistry is now non-commercial chemistry anyway, so I buy it online from Bostick & Sullivan or Photographers' Formulary.
The demise of the local camera store began 20 years ago or more, with the advent of the New York (in the US anyway) superstores like B&H and Adorama. They advertised prices in Shutterbug and the other hobbyist magazines that local stores couldn't/wouldn't match. Part of this was due to their buying policies. They could buy in quantities that the small local stores couldn't, and so they got discounts for volume. They also paid in full, in cash, at the time of purchase from the manufacturer, so they saved another 5% or so on financing, which they turned around and passed on to their customers. Factor in those two discounts, and they were buying their goods at a 15-20% lower cost than the neighborhood store. When your profit margin on the neighborhood store is 10% on a good day, your New York competition could sell at your cost all day long and still make a 5-10% margin, which goes farther when you're selling 100 cameras a day instead of the 100 a month for a busy single location mom-and-pop shop.